Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

6 biggest mistakes homebuyers make

Buying a home is the biggest purchase most people will ever make, yet many go into it blind. Here are the 6 most common -- and costly -- mistakes homebuyers make.

1 of 6
BACKNEXT
1. Not knowing your credit score
1. Not knowing your credit score
If you're even toying with the idea of buying a home, you must find out exactly what your FICO score is. If you find it is less than ideal, wage a systematic campaign to raise it. Too many borrowers ignore this step and get surprised when they get interest rate quotes.

Once you've pored over your credit history and corrected any errors, your next step is to pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly.

Why does it matter?

The lower your score, the higher your costs of borrowing. Fannie Mae and Freddie Mac, for example, charge higher up-front fees to borrowers with credit scores below 740.

For a buyer with a credit score between 680 and 700, the fee comes to 1.5% of the mortgage principal. On a $200,000 mortgage, that adds up to $3,000. Someone with a 740 score pays nothing.

Lower-score borrowers also get saddled with higher interest rates, about 0.4 percentage point more for the below 700 borrower. That costs an extra $62 a month -- $744 a year -- on a $200,000, 30-year, fixed rate loan.


NEXT: 2. Buying a car before a house
Last updated April 21 2010: 2:51 PM ET
Email | Print | Share  |  RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
More Galleries
'Spotlight' is just the latest edition of newspaper movies Here's a list of the best newspaper movies. More
Most valuable car collection ever auctioned In total, the 'Pinnacle Portfolio' is the most valuable group of cars from one collection ever sold in a single auction. More
This is how far robots have come since the 1930s Are robots catching up to humans? Yes. Should we be scared? Find out! More

Special Offer